533 / Does the calculation of a taxpayer’s investment in the contract for purposes of the annuity rules change if an annuity is a life annuity with a refund or period-certain guarantee?

If an annuity is a life annuity with a refund or period-certain guarantee, a special adjustment must be made to the investment in the contract (whether premium cost or other cost). The value of the refund or period-certain guarantee (as determined by use of a prescribed annuity table, Table III or Table VII, or a formula, depending on when the investment in the contract was made) must be subtracted from the investment in the contract. It is this adjusted investment in the contract that is used in the exclusion ratio ( Q 537, Q 541).¹

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1.     IRC § 72(c)(2); Treas. Reg. § 1.72-7.

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